How do you repay $ 80,000 in student loans on a salary of $ 42,000?


Dear Penny,

I just landed my first “real” job after graduating from college in May. My salary is $ 42,000, I am 23 years old and I am single. I have $ 80,000 in student loans (about $ 50,000 federal and $ 30,000 private).

I know I need to pay off my student debt, but I also need to save an emergency fund, save for retirement, etc. I also have about $ 3,000 on a credit card. How to prioritize? I feel overwhelmed.


Dear H.,

I suspect you are overwhelmed because you are in a time of life where there is so much that you are supposed to prioritize right now: Get out of debt. Save for retirement and emergencies. Negotiate a decent starting salary, even if your resume is meager.

Very often the advice comes down to this: If you just make X move now, you will accumulate great fortune and success, and you will never have to worry about money again.

Sometimes that’s good advice, although it often comes from people who haven’t lived on an entry-level salary in decades and have never tried to pay off a student loan balance near the end of the day. double their starting salary.

Sometimes it’s superbly unnecessary. People tell you that you should never have taken out student loans, chosen a cheaper school, or taken another specialty, like having access to a time machine.

So far you can only stretch $ 42,000, so yes, it will be a challenge to save money while paying off $ 83,000 in debt. But I don’t think your debt is insurmountable.

Consider your friendly advice columnist here receiving letters from people approaching retirement with similar amounts of student loan debt. You are 23 years old. You have time on your side.

But you have to be strategic about how you pay off your debts.

I suggest getting your minimum student loan payments as low as possible so that you can eliminate credit card debt first, as the credit card interest is considerably higher. Plus, because the balance is quite low, it’s a “winner” that you can get quickly.

To lower your minimum student loan amount, start by applying for an income-based repayment plan at These plans will cap your monthly payments at 10% to 20% of your discretionary income, but they will only apply to your federal loans. They extend your monthly payments over 20 or 25 years, instead of 10 years, and the balance you owe at the end will be waived.

A single person in the continental United States with your salary and a federal loan balance of $ 50,000 at 5% interest could save almost $ 350 on their monthly payment.

Of course, there are downsides: Obviously, these plans extend your debt repayment time, and you often pay more interest as a result. You will also be liable for income tax on any amount remitted.

The goal here isn’t to cancel the loan – it’s to lower your monthly payment for now. You can always make additional payments or make more than the minimum.

Once you’ve got rid of your credit card balance, keep making minimum payments on your federal loans and focus on paying off your $ 30,000 in private student loans – not just because the interest is higher. high, but because you have much more protection and flexibility. with federal loans. Apply what you pay on your credit card to your private loans.

Once the private loans are depleted, start allocating those payments to your $ 50,000 in federal loans.

As for your other goals: Take advantage of all the 401 (k) matching offers from your new employer. Even if your business only matches 25% or 50%, that’s a 25% or 50% ROI. I would also suggest setting up direct transfers to build an emergency fund, even if you can only afford $ 50 or $ 100 per month.

Once you’ve gotten rid of your credit card debt and private student loans, you might want to readjust your priorities and start saving a little more, even if you’re still paying off your federal loans.

In general, the best advice for any recent graduate, whether or not they have a student loan, is to continue living on their student budget for as long as possible. That means keeping your cost of living low by sharing the rent with roommates or living with family, avoiding paying for a car, and limiting eating out.

With the right strategy and the right budget, you’ll get rid of that debt – no time machine is required.

Robin Hartill is editor-in-chief at The Penny Hoarder and the voice behind Dear Penny. Send your questions about student loans to [email protected].

Leave A Reply

Your email address will not be published.